In what appears to be one of the first possible loopholes in the new rent laws, some New York City real estate brokers have been ignoring a rule that prohibits landlords from charging more than $20 for background or credit checks.
The specific statute, which became effective on June 15th, states that “a landlord, lessor, sub-lessor or grantor” can charge fees associated with conducting a background check and credit check in the amount of $20, or “whichever is less.”
Carl Hum, general counsel at the Real Estate Board of New York, the industry’s lobbying arm, told Gothamist that the law contains a grey area. “There’s no mention of brokers,” he said. “Because the law doesn’t specifically mention brokers, and because brokers are doing this work of preparing the applications, they could conceivably charge on top of [the $20] for the work that they do.”
He said the ambiguity "goes to the fact that the law was written in a matter of days without a hearing," he said, adding that such a hasty legislative process serves neither brokers nor renters.
The ultimate interpretation lies with the Department of State, which issues licenses and oversees real estate brokers. A spokesperson for the department told Gothamist on Tuesday that it was reviewing the issue and did not respond to a follow-up inquiry.
In the meantime, Hum said, “This is an area of debate.”
However, Ellen Davidson, an attorney at the Legal Aid Society, disagreed.
“They are clearly acting as the landlords’ agents,” she said. “They step into the shoes of the landlords and have to follow the law.”
Davidson said she expected the law would eventually be clarified by the state and also through the courts in the event of lawsuits.
Two state elected officials, who worked on the legislation, told The City that the real estate industry was blatantly flouting the new rule. “The intention of the law is that the application fee should not exceed $20 to protect folks from excessive fees. This is a plain reading of that that makes the intent pretty clear,” State Senator Zellnor Myrie told the news website.
One of the problems of applying the law only to landlords and those with property interests is that brokers are involved in the bulk of real estate transactions in New York City. That, along with the often fierce competition for apartments, leaves renters with the feeling that they have little leverage with brokers, who are essentially the gatekeepers for the market. The City Council is currently considering legislation that would reign in broker fees, which has received intense opposition from the real estate industry. Among other measures, the proposal would limit the brokers fee to one month’s rent.
Council member Keith Powers, one of the sponsors of the bills, said he was currently reviewing the feedback from those who testified at the public hearing in June and that he was looking forward to continuing the legislative process in the fall "to address expensive upfront costs in the rental process.”
Davidson said she was a little surprised that the real estate industry would respond in this way to the new rent laws in light of the proposed City Council legislation, which specifically addresses the burden of upfront costs faced by renters.
Several tenants who applied for apartments after June 15th told Gothamist they paid application fees that were significantly in excess of $20. All were through brokerage companies.
One tenant, who asked that his name not be used for privacy reasons, said he signed a lease last month for a two-bedroom apartment in Crown Heights during which he and his roommate paid Compass, one of the city’s biggest brokerage firms, $80 apiece in application fees. He sent Gothamist a copy of the blank application which stated the fee in fine print.
He said he was unaware of the law at the time and only learned about it later from a friend.
Throughout his search, he said he did not come across any apartments that involved renting directly from a landlord. His unit, which is located in a two-family house, rents for $2,400 a month. “I didn’t even think that was a thing you could do,” said the Michigan native. “The idea of using a broker seemed so engrained in how the market works.”
Devin Daly, a spokesman for Compass, said initially said the application form was "outdated." He then issued the following statement: "Since Compass is not a landlord and per the advice of REBNY, Compass is allowed to charge a reasonable application fee amount, as we are a third party and still need to cover the cost for our account service providing the credit check/background check amount does not exceed $20."
Another tenant, Tanner, who asked that his last name be withheld, said he and his roommate had known about the new law but they elected to pay $150 per person anyway for application fees charged by Dynamik Real Estate Group. He provided Gothamist with a screenshot of his receipt, which came out to $155.25. The additional $5.25 they each paid was for a convenience fee, he said.
He said they were worried that there was heavy interest in the two-bedroom apartment, which is located in Midtown East and rents for under $3,300 a month. So they decided not to to take any chances.
“We said screw it, we’re not going to argue it,” he said.
Dynamik did not immediately answer a request for an interview.
Asked how it has been advising members on the policy, Jamie McShane, a spokesperson for REBNY, stressed that the organization has been conducting ongoing education sessions on the new rent laws.
As to what REBNY tells brokers who ask if the $20 fee limit applies to them, he replied, “Talk to your attorney.”
UPDATE: The story has been updated to include a new statement from Compass.